tonight on "the kudlow report." i part company with wall street on the feds. their policies are risking inflation. i'll tell you why. the new bull market snapped back anyway, stocks snapped back with gain. we have an exclusive interview. whatever happened to swiss banking secrecy? is nothing sacred? is the ubs settlement another irs tax fishing expedition? fasten your seat belts, everyone. "the kudlow report" begins right now. good evening, everyone. i'm larry kudlow. welcome back to "the kudlow report" where we believe free market capitalism is the best

path to prosperity. the bull market snapped back today and prospects for modest economic recovery still look good. i want to issue a warning or two about the fed's policy statement from bernanke and company. i am not thrilled about it. they're keeping their fed funds target rate near zero and talking about adding another $1.5 trillion to their balance sheet through the purchase of mortgage bonds and treasuries. i don't care whether those purchases come sooner or later. they represent massive new dollar creation and potential inflation. the fed is targeting unemployment, not price stability or king dollar. here's my question. is the fed repeating the exact same easy money mistake they made between 2002 and 2005, when they totally bubbled up and insulated housing, energy, financial markets and all of which led to a 6% inflation rate down the road, all of that led

to a very deep recession. call me worried. distinguished monetary historian and fedex expert allen meltzer says the fed needs to wind down the printing of excess cash and balance expansion in order to stop future inflation. he's right. even if government health care control doesn't pass, it's bad enough that uncle sam is borrowing too much and spend doing much, which will slow future prosperity and buy us a system toward inflation. in the short run, excess liquidity from the fed may be good for stocks. in the longer term, it is not good for stocks or the economy, or your pocketbook. that's my take. we will talk about this at several points during the show with our fedex expert and our investors. now, first up, let's look at this triple digit gain and go to rebecca jarvis whose has the inside look at stock market

central. hello. >> hello, the two day losing streak comes to an end and stocks hit their high just after the statement. you heard it on the economy. things are leveling out. traders read that as stable day, a hint of optimism. bullish news out of toll brothers. they went up 3.05. and we'll talk about it later on the show. you do see the upside all the home buildersment macy's beat expectations and raised guidance and said the new store concepts based more on regional taste are working. it got a big pop and since the march low, it's already up over 100%. from tech land, upbeat report said demand is improving and financials. lighter trading volume in financialland. as a group, they led the market today and firmer in the after

market, too. of particular focus, john paulson picking up 168 million shares of bank of america as of june 30th, more than a $2 billion stake. you do see the stock up in the after market, paulson also reporting new holdings in regions financial, goldman and state street, based on an sec filing, larry. what we don't know, if he's still holding onto these stocks because the sec filing relates back to his june 30 standing. we don't know that yet, larry and don't know whether he's short other stuff in the market. obviously, this is a guy who knew or could foresee a financial crisis coming and shorted lot of financials back in the day. >> dick bove told us he likes citigroup but paulson went for bank of america. they're both partly government owned. >> they're both partly government owned. some people might say maybe one is more owned by the government than the other. >> paulson is a smart guy. interesting play. thank you, rebecca jarvis.

let's dive into our speed trade. jim yoeurio, director of institutional services. thank you for being here. >> thank you for having me. >> let me start with and offbeat question. president obama is running into tremendous resistance to his health care plan, town hall protests across the country. kind of looks like the plan is not going to make it. i want to ask you, is there a political hook to the stock market bull market rally i've been talking about. what is your assessment of obama polls down, health care chances down, stock up. >> i will say this without appearing to be doing too much obama bashing. the health care was a problem and as soon as it started to fail a little bit that was part of this bull market rally. i think it plays a good part of it actually. >> what about the health care insurance stocks.

we've seen good runs in the summer rally undeterred by the threat of government takeover of insurance. you've seen humana, united, even aetna. that suggests a, they're fairly healthy companies and b, they're not going to be taken over by the government. >> both those things. remember, they were very much deterred from rallying a couple months ago when it was believed they would pass this through, and it wasn't until they had chinks in the armor when they started this rally. that's great. part of the market. >> is there any credence in your honest judgment as a trader guy involved in the day-to-day stock market action president obama's polls have now been slumping for several months while the stock market goes up, is that unfair. >> yes, it's unfair because i don't think the administration has a tremendous amount of say what's going on. the administration before bungled some things as well. the things that are working, comes into conflict you said the

fact they're weakening the dollar a little bit is one of the key elements why we're where we are today. the weak dollar bowied the stock market and gives the perception of stability not just for ma and pa investor but companies. i look forward to when we can stand alone on the dollar and the stock market can rally only based on the fact the u.s. looks like a good place to invest and flow of funds will be directed towards us. i don't believe that's today. i believe we need a weak dollar to get us out. yes, it's a dangerous game when you walk that tightrope of weak dollar and too weak of a dollar. >> dollar lost a little ground today, not much, still holding the high ground basically. >> this is what we want, want the dollar to lose a little ground and not have that get out of hand. if the dollar rallied, think of all the parts that would be hurt, international companies paid and foreign dollars hurt, exporters hurt. even the banks. because when you look at a weak dollar we make the jump to steep yield curve and say, banks can

make money in that environment easily. >> you know, my friend, i have to tell you, i am partial to king dollar. i would like to see a stable dollar if we had confidence in a stable dollar which we don't have right now. to me, these international companies should be totally hedged in their currency position, they all have traders and treasury departments nowaday, you know that. >> i know. >> furthermore, a stable dollar would keep a lid on energy, keep laid on commodity, in fact, take a look at the charts. energy hasn't moved now in almost two months. i think that's a function of the steadier dollar. gold hasn't moved ever since the stead stopped printing money even though i worry the fed will print future money. some of this dollar stuff can be positive. >> no question about it. in six months i will sit here and agree with you. king dollar, let's bring everyone's money in to invest in real estate and u.s. companies. i don't think that day is today. we don't have any organic non-government sponsored growth. all the good earnings were

mostly from cost cutting. we're sitting back waiting for the growth to happen and attract the money. it won't happen today. in a couple months, i'm with you. >> last one, are you surprised not only the snapback of the market from yesterday's sell-off but snap back of financials, it took a hit. dick bove was on this program and said no profits in the second half of the year. today, everything seemed to reverse. how do you read the bank story. >> i think i slept and missed the correction, what did we get 3%. >> was that the correction? i don't think the correction guys will be satisfied with a 3% move. yes, i was very surprised today and changed my mind a few different times, lost money and decided to abandon that strategy for tomorrow's trading. i am surprised how quickly we snapped back. i am not completely convinced the correction is through. i like late money. today, late money was selling. i think there is a small chance it could be in a little bit of corrective phase. >> corrective phase, how big a corrective phase?

>> if we correct like i thought we would, we would go to 955 in s&p, nothing bad, good, pruning the hedges for morallying. >> sometimes i am right and sometimes i am very wrong, jim. i see a correction up to 1050 on the s&p 500. >> i like yours better. >> i don't know, i prefer your advice to mine. thank you for helping us out again this evening. you can catch jim again on the options action at its new time 8:30 eastern an cnbc. coming up on "the kudlow report," ben bernanke says the recovery is real. is he ignoring inflation and king dollar? we'll debate with dualing michelles. and the market snaps back, two top investors to tell you where to put your money. we are "the kudlow report." i am a little bit worried about the fed folks, are they going down the wrong road? i don't want to repeat the mistakes of 2002, 25, stay with us, we'll talk much more about this.

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welcome barks folks. we have breaking news. there's a 6.8 earthquake off the japanese coast, a tsunami warning for tokyo. we will give you more information from our cnbc bureaus when we get it coming in, a 6.8 earthquake off the coast of japan. there is a tsunami warning for tokyo. we will keep our eye on that. now, turn back to the feds, fed head ben bernanke says the recovery is real. i am personally a little worried as i said in my opening remarks he is ignoring king dollar and possible for future inflation. let's have a talk about this story and the fed.

we have barclay's capital economist michelle meyer and michelle managing director and senior economist at rbs. two michelles, terrific stuff. michel michelle, welcome to the show, great to see you. i want to ask you, to me, the fed is basically saying the recession is over. i'm worried they will buy up 1.5 trillion in mortgage bonds and treasuries and that will flood the money supply and create inflation down the road. what's your take. >> i think the key is how do they unwind this easy policy. right now the economy is indeed in our view emerging from the recession. we think the recession ended in june. it's still quite vulnerable. you still have a lot of head winds against the consumer. we think we will see a cyclical balance the second half of this year but still a question how sustainable this recovery is. because of that, we need to see easy policy for some time. once you start to see unemployment come down and see this excess slack in the economy

diminish, i think you will see the fed step in and actively unwind its loose policy. >> michelle gerard, you have continued zero fed funds rate. although the fed may delay treasury purchases, they're going through with thanis and g to a trillion, 5. it hasn't moved in seven months but it will move if they do. i want to ask you, is the fed targeting the unemployment rate and would that put them behind the curve? that's a straight phillips curve trade-off, unemployment versus inflation. i'm worried the threat, i can't forecast it, i'm not smart enough to know the future but the threat of repeating 2002, 2005, michelle. >> yeah. larry, i agree. the balance sheet, i think, is probably not far from its peak. they still have mortgage purchases to make but at the same time, the other parts of their liquidity facilities, the

tsl left or swap lines, those sources of fund iing are coming down. on balance, the balance sheet is sort of running even at this point. i don't see a massive run-up from here. larry, i worry with you as well. they're very complacent about in flampgts you saw it again today. they expect because of the output gap, they think the out put gap won't close for years. that's probably true but they think the existence of the output gap really takes the pressure off inflation and lets them sit and wait and be absolutely sure about the economy before they move. i think that's where they could be wrong. they think they have all this time to wait. i think unfortunately they're going to be surprised. if the change in the output gap, as soon as we start to see resources being used, as soon as the economy turns, i think inflation pressures will start to build. i think they're very complacent about the inflation story and gives them a lot of time. i don't think they have that

much time. >> we have a chart of the monetary base, essentially the fed balance sheet. as michelle described it, the base has been flat now for seven months. the big injections were made september, october, november, maybe early december. michelle meyer, let me ask, you if the fed's emergency liquidity facilities run off but they're still adding 1.5 trillion, as per their plan to buy mortgages and agencies and treasuries, doesn't that replenish the runoff and then some? it's the then some, michelle meyer that worries me about inflation. >> i agree with you, larry. inflation will probably edge higher because they are set to complete the mbs program. there'sals the other program that might also be expanded. although the liquidity programs are diminishing, you are seeing decline in the balance sheet because of that, you still have further additions ahead of us.

that is a concerning point. in our view, the first step, in terms of the fed tightening policy will be to drain some of these excess reserves by essentially changing the type of liability this is a have on their balance sheet. i think that will happen before they actually start hiking interest rates. >> i want to get both your views what the fed is inferring about a possible second half gdp recovery. michelle gerard, where do you go? seems to me they were hinting at it. what's your take? >> the second half, particularly third quarter is shaping up statistic rally to look very strong. the pace of inventory, i think is going to slow significantly. we had a big drawdown in the second quarter and even though we're getting more in the auto in the third we have gdp rising throws to 3 1/2% in the third quarter in large because the pace of inventory will slow. i think the inventory story will play out in the second half of this year. people are looking beyond that,

into 2010 and saying, yeah, but that kind of growth isn't sustainable. our argument is once the inventory boosts starts to wane as we get to 2010, the underlying recovery in terms of consumer spending, business investment areas will begin to show itself. we see growth turning positive in the third quarter and staying positive through 2010. >> michelle meyer, some people, muriel roubini is worried about a w and dougy cass worried about a double dip, after you get the bold that michelle is talking about, i've been hung out to dry, cash for clunkers is having a positive effect in the third quarter, i know all the conservatives are killing me for saying that, go ahead, hit me here. what about the double-dip, is it sustainable as michelle gerard is suggesting. >> it is sustainable. you may not see that sharp v as

in other past recessions, probably see more modest recovery, soak better than recovery of the past two moderate sessions we do think it's sustainable and don't think we will see another double dip. in order to see another double dip in our view, you need to see a shock to the economy. the consumer is struggling with lot of head winds, fundamentally as long as the market improves, they have income, they will spend. >> there are massive government budget deficits from all this spending and borrowing going on. the fed is going to be there in buying treasuries and mortgage bonds. have they put to rest the issue of quote monetizing the federal budget deficit? have they put that to rest, michelle gerard? >> i think they probably have because they're winding down the treasury program. let's face it. as long as the balance sheet remains as large as it is. as long as there's this looming threat of the fed continuing to grow the balance sheet, those

fears will not be put to rest, they will not be put to rest until the fed ultimately goes on course and shrinks the balance. >> no mention of the dollar, michelle, no mention of the dollar, none, zero, i'm not surprised, i'm fighting a losing battle here even though i have a peculiar view a stable greenback is good for america. >> no mention of the dollar. in our view, the dollar will continue to weaken. >> you said it. michelle meyer and michelle gerard, you're both terrific. thank you. coming up earthquake off the coast of japan tonight. conflicting reports for tokyo. when we come back, bullish signs from the housing sector. how about that? we will hear about an exclusive interview from toll brothers ceo bob toll. next up. we are "the kudlow report." we are coming right back. i wish the fed would pay more attention to stable dollar and

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in a long line of amazing performance machines. this is the new e-coupe. this is mercedes-benz. conflicting reports whether there's truly a tsunami warning for tokyo. let's go to tokyo for the latest. how will this play out? what's the latest? >> good morning, larry, there was a 6.52 quake off the southern coast of japan. this is the third largest quake

to hit the japanese region this week. there has been one death from the previous quake. i'm standing on the 27th floor of a relatively new building. i felt the quake in central tokyo with the building swaying and studio lights creaking. the meteorological department says there may be a tide but no big issue. 40 kilometers below sea level relatively shallow. there have been land sliced, an unusually rainy summer the last two months and closed off when a major expressway running across central japan. this is the third large quake to hit central japan. having said that we are used to earthquakes. ovary five minute every five minutes, there is a quake in japan. no reports from damages of this latest quake about 30 minutes ago. >> can i ask you one more? i don't mean to be mercenary and

materialistic, is this shaking up the financial community and stock market open. >> the construction stocks monday have been gaining on the back of, not only the quake but a number of strong typhoons to hit the region not only in japan but taiwan as well and been a boost to some construction stocks. otherwise, fairly quiet on the financial front this is a traditional summer holidays where trading volume is expected to be fairly weak tomorrow. >> thank you very much from toky tokyo. next up, bullish signs from the housing sector as toll brothers beats estimates. my goodness. diana talks exclusively with toll brothers ceo bob toll and joins us with details. >> hi, they reported their first jump in signed contracts in four years says price is no long their driving factor. home buyers are simply more

seriou serious. >> we see a different market. we see market with more confidence. interesting, in the last four weeks, only four people have told us they are changing their mind, not buying a home because they are primarily worried about their future, their job opposed to a number that was four times that a half a year ago. i just think you have a different market. >> in fact, toll's cancellation rate fell from over 20% a year ago to just 8 1/2% in k -- q2. buyers are more qualified. he says the intervention is needed. he'd be shocked if they let the $8,000 for first time home buyers expire as expected to do in november. >> if you gave a kick to the new

home building industry, if you took that $8,000 and made it $15,000 and opened it up for all new home buyers, put an end it to, say, four months, you could give this economy such a kick we could get out of the doldrums. the collateral employment combined with regular employment for new home construction is the biggest driver of the economy in the country. we have an opportunity. we ought to take advantage of it. >> of course the home builders as well as the realtors are all pushing for extension of this first time home buyer tax credit. realtors reported in the second quarter of this year one-third of all home buyers were first time home buyers taking advantage of that tax credit. >> did bob toll say anything about the signed contracts, the best in four years, can they get credit from the banks? >> they can. he said his home buyers are all qualified. you have to remember while toll brothers is a luxury home builder, the median price point for their sales in q2 were in

the $525,000 range. they are conforming loan, not jumbo loans. they do sell a couple million dollar homes most are in conforming range and most buyers pre-qualified, easy to get the loans and didn't have to go for jumbos. that said, the mortgage margaret is tightening on the higher end. if as he says prices will go up on his homes that will put more people in the jumbo range and could cause trouble. for now, still in conformance. >> great interview. i've never seen bob toll happier in years. up next, the new bull market snaps back today with another triple digit gain. coming up later, whatever happened to swiss banking secrecy? is nothing sacred? is the ubs deal with the u.s. government another irs tax fishing expedition? we are going to have a heated debate about that. tax-free come to, keep it here with "the kudlow report."

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k today. the new bull market with me

are the two best investment men in the business. ed yardini, president of yardini research. thank you for helping me out. you buy into the new bull market. >> yeah. >> we have a ways to go. >> yeah. >> we have bull market strength. i want you to walk through this. this yellow line, the current story is above your blue map here. explain that to our viewers. >> it's positive in the last bull markets. this one is the 1982 experience which everyone think is the biggest of all. we're already past that in terms of strength thus far. >> as a guy who looks at the technical stuff and charts, this tells you what? >> this tells me this market will keep going. important thing about 1982, you didn't have your first correction for over 1,000 days.

for those suggest we're due, it's time and so on, so forth. the other thing interesting about this. let me stop you there. that's a very important point and i will get brother yardini. people say since it started in early march, it's long past due for a correction. you don't really buy that one. >> historically in 1982, we went over a year, from august to 14 months before we had a first 10% dip. >> that would put is into let's say march or the spring of 2010. we have a ways to go, at least. your thoughts on his charts. >> i love it. he's one of the smartest strategists i know and pleased we share the same opinion. remember november stocks took a dive because congress failed to pass t.a.r.p. and mid-september we had the aig disaster and the

market dipped down again. we have the t.a.r.p. gap and the lehman gap to fill here and will put us to september. in terms of the s&p, 1200 to 1250 would fill both the t.a.r.p. gap and the lehman gap. the reality is things aren't as bad as was feared when we made those gaps, saw a dive in stocks after the lehman collapse when that whole t.a.r.p. stuff happened the end of tember. >> before we get back on the pre-lehman call, i mentioned it myself, a fascinating thing, you have naysayers, want to give you a chance to knock this down, surprises from cost cuttings, no top market revenue, yeah, we might have bump-up as we produce more inventory but it will sink

right back down again. i'm sure you have heard all this and more, consumers are saving therefore they can't spend and however they react is bearish. how do you react to that. >> companies always cut costs in recessions, when the economy recovers they get a big pop in productivity and huge pop in earnings. i think that's still ahead of us and the market discounts anticipates that. even if we have a weak recovery in the united states, people forget, it's a big world out there. our companies are world class competitors and will do fine finding revenues and earnings growth overseas and much faster growth if they don't find a real pickup over here. i'm not that concerned in terms of impact for the market. >> giant productivity number for the second quarter. i want you to comment. down through the years, you talked a lot about importance of productivity. >> i think we saw an improvement in productivity since the 1990s, companies using technology,

labor markets much more flexible. all sorts of factors have kicked in really made us a very productivi productive economy and looks as if nothing is stopping us now. >> come back us to us. the pre-lehman call. what do you see? >> i agree. i think the market looks good. the negative case is always more articulate, always more compelling, always more rational because it deals with the present. the market deals with the future. you can always make the bad case. i think this market is telling you look ahead because that's what the market is doing. >> corporate bond rallies, you had a phenomenal rally in the price of corporate bonds both investment grade and so-called high yield junk. the rates have plunged and credit spread against treasuries narrowed. we're back to pre-lehman and back on the short term money market things like libor spread. does that inform you on getting

back to the pre-lehman call ed yardeni suggested? >> the market is past that and also a function of safety. basically, the market has said is history, let's deal with the future. >> what about financials? people are getting cold feet. we had dick bove on last night, no profits in the second half of the year. what is the technical call on financials? they had the second best run-up. >> in this market, all the historical things aren't holding true when it comes to sectors. everyone is talking about financials. they more than doubled. in the average bull market the last 30 years, financials are only up 10% in the first 100 day days. >> just to interrupt, we're putting it up here, financial rally strength. that's running well above the average the prior six. you don't buy the pullback in financials? >> i do not. i think they may stall but don't

forget we stalled a couple weeks ago before we went higher starting july 10th. >> go ahead, ed. >> what everybody forgets april 2nd the financial accounting standards board got rid of that ridiculous market rule causing an implosion in our system there. was no market price for assets an that was killing capital of the banking system and creating a death spiral for the financials. that's when the market was discounted by march. on march 12th. we started to say here, congress was putting a lot of pressure to suspend mark to market. they did that on april 2nd and we haven't looked back. >> are you worried? there's a lot of talk that the ne nerds may return to so-called fair market accounting? >> i'm shaking my head. i don't know what they could be thinking, they can't be. >> if they, do that could derail this in the short run. >> it would be horrible there. are people in congress i think

got this one extremely right. i would imagine they would be jumping all over fasby to keep that from happening. >> talk tech to me. how do you see the tech story. >> i think tech is strong, probably the leadership in the market. the one sector following the historical script and scenario, but the only one. >> tech has not done well in the past ten years, arguably the whole market hasn't done great in the last ten years. there's your tech rally strength. yellow line current, blue line average of the six prior bulls. how far can tech run? tech has been a great leader, what do you make of it. >> i think it keeps ongoing. again, people waiting for the pullback in the correction, that is why you're having afternoon rally because they realize the train has left the station an not coming back. >> ed yardeni, what's your call on the fed today? did they inform you at all? i'm worried down the road they will be printing too much money. >> you might be right down the road. the fed doesn't do surprising

changes here. you pretty much nailed the whole issue earlier in your show, that is the monetary basis has been flat. as long as it's flat, i think we're okay and probably what the fed will do. as long as the liquidity facilities keep dropping, that tells us the pressure is off. if they're offsetting that by buying treasury in agency, i don't really worry that much. >> as a bull market advocate right now, what's your biggest concern, ed? what's your biggest worry out there? >> washington d.c. worries me a lot. worries a lot of small businesses that do a lot of hiring. there's too many changes in key policies being considered. i'm rooting for gridlock. gridlock is very bullish. gridlock has a bad connotation but part of civics of america, checks and balance, what the country is all about. i hope it wins here. if gridlock wins, america will go higher?

does the health care plan look like gridlock? obama's having all kinds of problems. >> i do. they're trying to change one-sixth of the economy and too many violence feel that's a threat to them personally and feel we will get gridlock on that. >> how does the washington factor? is it in these market prices. >> my main concern about washington is systemic risk. a lot of things happened in the last ten years contributed to the problems of the last couple of months. i'm not really sure we're addressing them. >> name one. >> short sale up tick rule. >> you'd like to see it return. >> like to see it return. >> name a second one. >> the reg fde and the fact the analysts downgraded and become less important in today's market. >> therefore we're not getting the best analytic information. >> yes. >> you guys are absolutely wonderful. thank you for helping us out. as always, we appreciate it. coming up, ubs snitches on

accounting. does this mean the end of swiss bank accounts as we know them? is nothing sacred? we're going to have an exchange of views between joe degeneva and dan mitchell on this subject. first, let's check with my pal, dennis kneale and see what he's got cooking up. i heard you took a road trip today. >> yes. i went into the heartland of one of those health care hearings and investigate the obama posse's allegation, is this a  trumped up charade or real concerns and real stuff. >> at 8:00. >> we will talk about secret bank accounts and why america wants to impose its tax opinions on the rest of the world. "the kudlow report." please stay with us, the bull market lives.

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ubs the bank settled with the u.s. government and the

swiss government. bottom line, it looks like the end of offshore accounts. looks to me suspiciously like an irs tax fishing expedition. i think we'll get disagreement mainly from former u.s. attorney joe degeneva, a friend of the show and great americans and fellow dan mitchell who basically invented supply side tax economics. nice to see both of you. joe, what's wrong with some secrecy with bank accounts, by the way, american bank accounts are supposed to be secret. this blows the lid off the swiss secrecy, an age-old tradition. >> the swiss have given us chocolate, clock and banks secresscy. the bank secrecy is less secret for a simple reason. the swiss do not live alone, want to have relations with other country, want to have financial transactions with the united states. if americans are hiding money to

avoid paying taxes, the swiss just decided it's probably a good idea to cooperate with the united states government so you and i, larry, don't have to make up for the money those americans hiding funds are not paying in taxes. >> the great part about that one, joe, our tax rates are going up anyway, as you well know, much to my dismay. i want to ask you, if in fact they're using twist bae ining s accounts to dodge tax, do we know that? that is an allegation, a suspicion? is it actually proven. >> we have no idea of these 52,000 account, how many are evading taxes, how many are investors utilizing the financial services expertise of switzerland, how many are americans who live abroad, of course, in geneva or zurich have a swiss bank account. this is irs fishing expedition, tilting the play iing field to e

irs. this is america with a bad tax system exporting that bad tax system around the world, using our power to bully switzerland and dismantling or weakening their stronger human rights policy on financial privacy. that's a shame. we have the bad system and they have the good system and we are using our power to force them to change. >> you're coming back, joe. but that was quite a mouthful. i want you to give me a brief response as only you can. >> simple. the swiss are part of a big world. if they want to play in that big world and do international transactions, they have to play by everybody's big rules. the united states is asking for information. they may find there's no tax evasion, if that's the case, everybody's happy and goes home. >> we're asking the ubs to snitch on people. that can't be right, that's twi swiss tradition. >> to hell with swiss tradition,

they can respond, we will not give you the information, the united states government can say, fine, we will not do certain transactions. >> we'll be back. keep it right here with the "kudlow report." me, i like lower tax rates but i would like it to be legal. hey d some minutes. i just gave you some at the restaurant. yea i know. i threw them out. they were old so... old! they are rollover minutes. they are as good as new. ya know not everyone gets to keep their unused minutes. and these days we can't afford to be wasteful. saving minutes... ...saves money. yea. (announcer) only at&t's family talk with rollover saves your family's unused minutes. and saving minutes saves money. for back to school, get the lg neon for $29.99 after mail-in rebate. hi, may i help you? yes, i hear progressive has lots of discounts on car insurance. can i get in on that? are you a safe driver? yes. discount! do you own a home? yes. discount! are you going to buy online? yes! discount!

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the swiss bank ubs and united states have apparently reached some kind of deal where ubs has to turn over names of

wealthy people because america thinks they're dodging taxes. dan mitchell, in a perfect world, what's the right answer to this dilemma. >> the problem is the american tax code is anti-growth. we double tax savings and investment. if we didn't do that and had a simple or fair tax, it wouldn't matter whether your bank account was in topeka, kansas or zurich, switzerland. that's our fix. don't bully switzerland into emasculating a very good policy. i thought after bush spent eight years irritating the rest of the world, maybe they would have a different attitude. instead, now obama is throwing weight around the world like an 800 pound gorilla. >> joe, you're a former prosecutor and an awfully smart guy. we have all these international tax treaties, why are we willy-nilly busting them here. what about the rule of international law. >> this is all part of the rule

of international law. the swiss could easily say we're not going to cooperate. they have chosen not for business reasons. they have decided this fight is not worth the candle. if it were worth the candle, the swiss chocolateeers would win. they want to do financial transactions in the united states and need this market and our government needs that information. if these people are not evading taxes the information will stay where it is. >> i understand that. it isn't at all clear to me the proof exists we're evading taxes. this reminds me of the irs all down through the years because we spend more than we take in and we have huge budget deficits, the irs runs around chasing waitresses and chasing cab drivers and trying to get all this illegal stuff, i just think we're bullying switzerland. the swiss guards protect the pope and we're bullying switzerland. >> the interesting thing is i

agree with you about going after waitresses and bartenders, the government does that. if they're going to go after the little guys, they better go after the big guys hiding money in switzerland. >> big guys hiding money in swi switzerland. that is great. >> dan, when are we going to lower our top tax rate and get in line with the rest of the world. >> unfortunately, we're moving in the wrong direction. that is why what's happening with switzerland is bad news. if the politicians know taxpayers have no place to escape, what will happen? they will charge us higher and higher tax rate. the whole reason we've seen tax rates come down around the world in recent decades is because of tax competition. switzerland by a bullying u.s. government moves us in the wrong direction. >> you should move to switzerland. >> thank you so much. you guys are great. why are we bullying switzerland. coming up, i'll be on "the call" at 11:00.

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